Today's Trends in Credit Regulation

Don’t be a Babe in the Woods – Borrower Rights with Maternity Leave
By L. Jean Noonan and Christopher Chamness

The miracle of childbirth is a beautiful thing. Over time both government and private employers have expanded maternity and paternity leave policies to allow parents to spend quality time with their newborns. Consumer mortgage lenders and insurance underwriters should recognize that federal law protects these parents. Unfortunately not everyone does, and this oversight can really rock the cradle, so to speak.

The Fair Housing Act, 42 U.S.C. §§ 3601-3619, prohibits discrimination on the basis of sex and familial status. These two protections have been woven together to cover parents who are on maternity or paternity leave.

One lender is feeling the sting of a recent U.S. Department of Housing and Urban Development investigation and enforcement action for violating this protection. The complaint against Mortgage Guaranty Insurance Corp. alleges that, as a private underwriter, MGIC refused to proceed on a mortgage insurance application for a woman on maternity leave, until she returned to work full time. Before it would process her application, MGIC went so far as to require that the new mother gain confirmation from her employer that she had returned to work.

The consent order in United States v. Mortgage Guaranty Insurance Corp. illustrates how expensive this error can be. The order requires that MGIC establish a settlement fund of $511,250 to compensate any people aggrieved by its violations of the FHA. The settlement fund pays $7,500 to each person whose application was not processed until that person returned to work. In addition, $3,750 is paid from the fund to each person suffering from discriminatory conduct related to how employment income is considered after the person returns from leave.

In addition these compensatory damages, the MGIC consent order took an additional step. The order directs MGIC to pay an additional $25,000 to the mother who originally brought the claim. The payment is for pain and suffering related to a pre-existing and documented medical condition made worse by the pressure to return to work. The order also requires that MGIC pay $10,000 for the mother’s loss of vacation and leave time.

This is strong medicine, but consumer mortgage lenders and insurance underwriters should look beyond monetary damages when assessing the full risk of an FHA violation. The consent order for MGIC demonstrates why.

In addition to monetary damages, the consent order requires that MGIC redraft its insurance underwriting policies and procedures to ensure that discrimination based on family status does not continue in the future. In addition to redrafting policies and procedures, MGIC is required to implement a new monitoring program to ensure compliance and post notices of nondiscrimination on its premises. These requirements are not rare, and are expensive to implement.

In addition to the financial burdens from these imposed measures, lenders and insurance underwriters should recognize that an enforcement action can harm their reputation, scare away customers, and trigger increased scrutiny from regulators.

To avoid these risks, lenders and insurance underwriters should discuss with their lawyer whether to implement new policies for certain “new parent” situations, for example:

1. An applicant may indicate that she will not return to work from maternity leave (or if male then from paternity leave) before the first payment is due. Consider a policy that would treat the applicant as earning the lesser of a) the regular employment income earned prior to maternity or paternity leave; or b) the temporary leave income the applicant is currently receiving plus any supplemental income.

2. An applicant may indicate that she will return to work before the first payment is due. Consider a policy that ensures that the applicant is treated as if she receives regular employment income, unless the employer provides reason to believe that the pay or employment situation will change.

3. Each mortgage lender and insurance underwriter should consider whether applicant’s income is stable now, without regard to previous uses of paid or unpaid maternity or paternity leave.

4. During the interview, an applicant should not be asked about whether the applicant is currently or formerly on maternity or paternity leave. Nor should the applicant be asked whether the applicant or partner are considering pregnancy or are pregnant, or are considering adoption or fostering a child.

By carefully crafting a thoughtful set of policies and procedures, you can prevent unwanted problems and instead deliver a new generation of compliance in your consumer lending practice.

United States v. Mortgage Guaranty Insurance Corp. 2:11-cv-008820-RCM, (W.D. Pa., April 30, 2012).

Christopher Chamness is a summer associate in the Washington, D.C., office of Hudson Cook, LLP.

Jean Noonan is a partner at Hudson Cook and manages the Washington,
D.C., office of Hudson Cook, LLP. Jean can be reached at 202-327-9700 or by email at

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